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IAB: Direct-To-Consumer Business Disrupting Brand, Agency Models

The direct-to
consumer business model continues to disrupt the brand and advertising agency business models, replacing the old purchase funnel with a shorter and more direct route to purchase.

“This is not an advertising story,” said Randall Rothenberg, IAB CEO, at the Leadership Summit in Phoenix on Monday. “Omnichannel shopping is the new normal."

One in three
in-store purchases, he said, are now made after shopping online.

Driven by mobile purchases and programmatic technology, the new model centers on driving down acquisition costs,
improving the experience for consumers, speeding products to market, improving services, and using data.

Agencies helping brands succeed in this model, such as MightyHive, have become
consultancies that are able to work in progressive ways. Direct brands are being more indiscriminate with media.

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Rothenberg said the days of only shopping in physical stores are over, and that
popup stores are the new advertising creative revolution.

The model is based on keeping the cost per acquisition low in the direct-to-consumer model. It also must have a mobile and data
strategy.

Luxury brands are also adopting this model to retain more of its customer data. Gucci, for example, doesn’t want more than 40% of its sales to come from brick-and-mortar
stores, Rothenberg said. This will allow them to retain more control of data and strategies.

The IAB report released Monday — How to Build a 21st Century Brand: 2019 — during Rothenberg’s
presentation takes an in-depth look at how direct brands drive this transformation in the way consumer goods and services are created, marketed and sold.

The study points a way forward across
the digital ecosystem with insights and guidance for flourishing in the shifting consumer economy — where startups like Allbirds, BaubleBar, Brooklinen, Dagne Dover, Dirty Lemon, Kopari, Madison
Reed, Peloton, and Plated take market share away from household-name retailers.

The direct brand economy is strengthening while physical retail continues to decline, growth in e-tail business
accelerates, and consumer e-tail spend vastly outpaces brick-and-mortar in categories as varied as beauty, groceries, and wellness. All of this is happening in tandem with a slowing CPG marketplace,
in which ecommerce is driving 82% of all CPG growth.

Along with the research, the IAB released a roadmap that uncovers lessons for incumbent brands, up-and-coming direct brands, publishers,
and the entire support system enabling this growth, from technology to suppliers.

Rothenberg said brands and agencies must do the following: drive down the acquisition costs, focus on the
community, change the omnichannel and adapt to a new environment, use the channels to foster relationships to physical and online environments, and increase the speed of releasing content by becoming
newsrooms.

If one looks at the price point for many DTC product lines, it will be apparent that lower costs for them do not necessarily lead to lower prices for their consumers as a competitive advantage. Many brands sell their wares at premium prices, not discounts. So efficiency does not automatically lead to bargains.